The wealth gap between young and old people

https://www.washingtonpost.com/news/wonkblog/wp/2015/07/29/millennials-should-no-longer-dream-of-ever-becoming-millionaires/

by jtzhou • 11 years ago

91 67 11 years ago

washingtonpost.com

carsongross• 11 years ago

There is a huge generational disconnect between the boomer-driven media and political establishments and the X'ers and millenials.

My prediction/hope is that the stereotype of millenials as relatively happy socialites will end up reversing, with them falling in with us burn-it-to-the-ground X'ers once they are old enough to realize how screwed they are.

jtzhou2• 11 years ago

True, but there is definitely a lot of staying power in those currently of retirement age, kicking the can down the road, with a growing proportion of the population over age 65 (20% in 2020 versus 9% in 1970) receiving the benefits of Social Security and Medicare which are largely unfunded.

There will have to be a number of cut-backs in retirement benefits for future retirees, including means-testing, removing the maximum wage for Social Security contributions, and higher Medicare premiums.

ForHackernews2• 11 years ago

removing the maximum wage for Social Security contributions

This sounds like a great idea to me. It's absurd that only the first $118,500 of earnings are subject to to social security tax, and it means that our tax structure is much less progressive than it appears at first glance (which is one reason certain people strenuously avoid talking about any taxes except Federal Income Taxes).

toomuchtodo6• 11 years ago

removing the maximum wage for Social Security contributions, and higher Medicare premiums.

Ahh! So the question is, at what point will Millenials (myself included, at the older end of the spectrum at 32) say "f* it" when we're paying Europe-level taxes with third world country benefits

* Single-payer Medicare for retires, expensive private insurance for everyone else

* Social security essentially becomes a basic income for retirees, as its not an account that can be depleted but an entitlement until death, supported by younger workers with terrible job prospects and long hours at low pay

Maybe the problem is that no one saves enough anymore, but that's because no one makes enough to save because most new income/wealth is kept by the very top wealth bracket.

jandrewrogers• 11 years ago

The reason there is a maximum on Social Security contributions and no means testing is that it is strongly marketed politically as a universal retirement account. Many of the system's characteristic are designed to ensure this perception. You receive Social Security roughly proportional to your contribution. This positioning is very important to the political support because there is the pretense of having earned it.

If you remove the cap on contribution and/or means test the receipt then that pretense is gone. Politically, it becomes explicitly a welfare system for people that did not save for retirement and penalizes those that do save. Once Social Security is perceived as "unearned" it becomes an acceptable target for reduction or elimination to the population at large.

Social Security is in fact a welfare tax and no one is entitled to receive it (see: https://en.wikipedia.org/wiki/Flemming_v._Nestor) but its political viability is dependent on the popular perception to the contrary.

thirdtruck• 11 years ago

Speaking as an older Millenial (by some measures), I'm fairly confident that "relatively happy socialites" has never been more than just a self-justifying projection by older generations.

Perhaps our poor situation is just so obvious that, instead of mostly complaining, we're mostly fully resigned or preoccupied with fixing things in our own way. We are more Hero generation than Nomad, after all (https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generatio...).

eli_gottlieb• 11 years ago

As thirdtruck noted, we Millenials have never actually acted much like the media portrayal of us. The high support Millenials evince for "socialism" in polls is a hint: we feel screwed-over, and we blame it on the system the Boomers keep saying they run.

zeidrich• 11 years ago

I've never felt millenials have been relatively happy socialites.

I've felt millenials are the generation that feels the most helpless. Gen-X felt like they were promised something awesome and then screwed out of it. Millenials feel like they've got no chance to compete, so they don't expect it.

Gen-X resented the fact that they had to try so hard to win the rat race. Millenials know they have no hope of winning or even finishing, so the best they can hope for is to make the race more tolerable.

It's why you see things about how Millenials are more interested in comfort and work-life balance than straight up salary. Unlike the boomers who expected to work for a while and then retire on a nice nest-egg, and the Gen-Xers who struggled to meet an ever elusive goal of retirement, millenials don't have any expectation of retirement through normal means. They figure they're working forever, so they might as well get comfortable.

I mean, years ago I talked to gen-x'ers and there was a lot of dissatisfaction and a feeling of a loss of control and opportunities, but a lot of people who gave up on their dreams and settled for a job that they hate with a pension.

But with millenials, they're happy if they can take their 6 figure student loans and find any job at all, and a pension is a bizarre concept from a foreign world. They can't really hope to retire in the traditional sense, it's more like playing the lottery. There are some enterprising people who might make start-ups to try to get rich, but it's either get-rich or get-by, there's no sort of middle-class accumulation of wealth and a nice retirement at 65 any more. It's win big and buy a jet or eat spaghetti at home and avoid debt.

So if you have two jobs to choose from, neither with a salary that makes an early retirement seem a reality, and one makes life a little bit more tolerable, your decision is between a life spent (at least partially) working a more tolerable job, or a life spent working a less tolerable job. So you opt for the job that pays a bit less but gives you more leeway for work-life balance. Boomers see that as an irresponsible happy-go-lucky delay of retirement, while millenials feel that that retirement idea is not really feasible, and if you're going to be working forever, you might as well enjoy it. Gen-X kind of got stuck in the middle where they end up trying to work really hard at something they hate for the chance to get that retirement but keep getting the rug pulled out.

It's kind of like 3 people doing the limbo. The boomer plays, kind of bends a bit at the knees, leans his head back and gets under the stick. The Gen-X plays and when he first sees the bar it's nice and high, but as he gets closer and starts to go under the bar it keeps kind of getting lowered, so he keeps bending and contorting and struggling to get under the bar eventually. It hurts, but they still have hope they can get under it. The millenial looks at the bar, sitting ankle high and says fuck it and just decides to make the best of it on this side of the bar.

Then the boomers hear about the x'ers struggle and say just bend your knees and lean your head back, it's not so hard, nobody had trouble with it in our day and we didn't even go to college. Then the boomers hear about the millenials not even bothering to try to get under the bar and say "they're just fooling around, they aren't thinking about their future, they're never going to get under that bar unless they stop fooling around and try."

But the fact that the bar has moved is so often ignored. We're just all asked to bend further, and then blamed for not doing the impossible. The biggest difference between millenials and x'ers is that he millenials ARE aware of it, and that's why they can seem to be happy-go-lucky and less serious.

It's easy to motivate you to work hard when you might feel like you can retire early and live in comfort. It's a lot harder to motivate you to sacrifice a lot to work hard when it feels like there will be no end to that work, ever.

X'ers just got screwed because they got caught in the transition between easy future and no future.

MajorLOL• 11 years ago

If you’re over 62, your odds of having at least $1 million in net wealth (your total assets minus your total debt) are relatively achievable -- about 1 in 7. But if you are under 40, your odds are low: 1 in 55.

So the older you are the more time you have had to grow wealth. The younger you are the less time you have had. This is then forcibly tied into median family income?

this is huffington post tier article.

stephengillie• 11 years ago

Young people (generally defined here as those under 40)

What is with the media and this strange concept of "young people" now being the 28-40 age bracket? Back in my day, "young people" meant 8-18 year olds.

This isn't the only article making this bizarre wordplay. One of the previous USDS "submarine" articles referred to "young people" on a team as the members who were over 28.

mjevans• 11 years ago

Clearly they are talking about 'the workforce' as 'people'. 'kids' are not considered anything but a cost center in their equation.

chc• 11 years ago

Like "big" and "fast," "young" is relative. A small person is much larger than a large ant, and a fast bike will generally go slower than a slow car. These people are young compared to the older people they're looking at.

danhak• 11 years ago

Did you even read past the first paragraph? The piece addresses your point directly and shows how the situation is getting worse, with the older generation having become increasingly likely to be wealthy over the past few decades and vice versa.

scarmig• 11 years ago

That's missing the point entirely: yes, older people usually have more money than younger people. But there's been a drastic, meaningful change in just how much richer older people are than younger.

Maybe there are good reasons for this, maybe not, but it's not just a restatement of the obvious.

mkozlows2• 11 years ago

Except there hasn't really been. If you look at their graph of wealth by age for all cohorts, the younger ones are actually ahead of the older ones up until the 2008 recession hits; and yeah, they drop after that, but then resume climbing. The effect does not look drastic unless you cherry pick a few years to focus on.

RickS• 11 years ago

Did you make it to the end of the article?

While I agree that's not a stunning insight, I don't think the author should be punished for stating the clearest conclusion of a graph before talking more about it.

dataker• 11 years ago

A large reason for that is a leveraged economy.

I still remember how hard it was to build up enough credit to move beyond prepaid cellphones.

11thEarlOfMar2• 11 years ago

A couple of factors that play into this over the last 100 years: The prevalence of credit cards that increase the amount of depreciating goods young people can buy, and the long-term power of 401(k) investing.

Expanded consumer credit, and it's appurtenant high interest rate cost, would tend to keep young people less wealthy towards the last half of last century. As credit card debt skyrocketed, savings rates plummeted from almost 11% in 1982, to 1.5% in 2007 [0].

Similarly, the power of 401(k) investing is really only coming into it's own in the last decade or so, since 401(k) accounts have had 30 years to mature, total retirement assets now total well over $3 Trillion nationally.[1]

[0] http://www.americanhistoryusa.com/give-me-liberty-or-give-me...

[1] http://www.nber.org/bah/fall02/changingCharacter.html

toomuchtodo6• 11 years ago

Don't forget wage stagnation over the last 40 years and the increased cost in college education (funded, yet again, by cheap credit backed by the federal government).

TheOtherHobbes• 11 years ago

This. There's been a massive shift of wealth away from the middle classes.

And college loans are just taxation by the back door - with the difference that instead of a graduate tax paid to the government, you pay a loan "tax" to the shareholders of the loan fund.

In fact, taxation is increasingly privatised. Instead of paying taxes to government you pay a profit-surcharge on almost everything. This goes to corporate shareholders but provides little or no returned value.

The result is that trillions of dollars are rotting uselessly in offshore tax havens, when they could have been invested in future economic development. And spending power has been suppressed, when it could have been driving the economy from the other end.

refurb6• 11 years ago

Wage stagnation is only true if you ignore non-monetary compensation. Add that in and total compensation has grown.

gorena• 11 years ago

As a young person, not sure I follow the credit card thing - I guess I can see how it extends my spending power by N% per dollar spent (where N is your rewards percent), but other than that, and it makes spending more convenient, but it's just a debit card with better protections and a longer interval before the money is withdrawn from my account. N is fairly small and it only applies to money spent, not money earned.

11thEarlOfMar2• 11 years ago

For disciplined spenders who use the credit card for convenience, spend carefully and pay it off every month, you are correct. But for people who tend to maintain a balance and who spend with less care and discretion, it enables them to spend more than they would if they had to spend cash, and, the things they buy effectively cost more due to interest expenses.

Either or both of those behaviors reduces the amount available to save and invest, which goes directly against growing wealth. It is really important to start saving and investing early, and that is when this behavior can cause the most harm. Averaging over the population, credit card debt is a drag on savings and reduces wealth. Since credit card debt has expanded into such a large number over the last 40 years or so, it has a more pronounced effect on younger persons.

falcolas2• 11 years ago

Speaking only for myself and my parents - the factor here has been land. They both inherited several hundred acres of farm and ranch land, and purchased some land in-town when it was (inflation adjusted) $90,000, and is now in the $2-3 million range.

They're both terrible at saving, their combined income was never over 50% of what I'm currently making, yet they have both been retired and comfortably living off these "investments" for 20+ years now.

I, on the other hand, am just hoping that I can move to part-time work somewhere in my 60's. I'm hopeful, but it means keeping my current income levels for another 20 or so years, and avoiding any major health or other emergencies.

gitah• 11 years ago

Well your parents inherited almost a million dollars of real estate so comparing your situation to theirs seems unfair.

msandford2• 11 years ago

30-50 years ago farmland was a few hundred an acre in real terms. Today it's a few thousand. That's inflation adjusted so land has definitely appreciated considerably.

http://www.ers.usda.gov/media/873616/farmrealestatevalues.pd...

What's the rising tide that floats all boats these days? It's not the stock market, it's not real estate, and it's not startups. I can't think of anything that keeps going up, except perhaps for inflation.

rhino369• 11 years ago

I assume the housing market is the majority of this wealth disparity. The nations northern cities have seen huge increases in property values. For those who bought cheaply before the run up, the benefits are clear. You buy a house for 150k in Palo Alto, CA in 1981. And in 2015 it's worth 1.5 mil.

For millenials, we are stuck in a market where you got to pony up 1.5 mil to buy a family sized house.

Maybe the market will just keep going and going. But I don't think our economy can support that sort of thing. At least not the extremes that happened since the 70s.

jtzhou2• 11 years ago

And the person who bought the home in Palo Alto in 1981 is only paying 1/5 of the property taxes as the person in a comparable home who bought recently. California is really the epitome of having a tax code favoring land owners and the older generation over those relatively new to the job market.

mistermann• 11 years ago

In Canada it's very similar, LOTS of people are millionaires simply from massive real estate appreciation. Vancouver is particularly shocking, but all of Canada in general has seen huge appreciation. Basically, we had the same bubble as the US did, but ours didn't burst in 2008, it just paused and then kept on going. It's kind of funny reading how after the fact, everyone knew the US bubble had to burst, yet the affordability ratios in Canada are far beyond those of the US at its peak and almost no one bats an eye.

I really feel sorry for people who are merely middle class or not in a marriage where both people have professional level incomes, I just don't know how they can afford anything reasonable in this market. And personally, I thought I'd do the smart thing, rent and live modestly and invest the difference - after all, minimizing your housing expenses by living in 700 sq ft instead of 2500 sq feet should be the financially wise thing to do, right? As it turns out, no, that was EXACTLY the wrong thing to do....the right thing to do was borrow absolutely as much money as possible, and buy as much house as you could afford - anyone who did that is laughing all the way to the bank.

As for retirement for me, I am slowly coming to the realization that I will never be able to retire, ever, whereas my parents retired in their mid 50's.

jondubois• 11 years ago

I can relate to this - The older generation owns all the land and use hard-working young people to pay the rent so that they don't have to lift a finger. In the western world, older generations tend to not be very generous with their children (interestingly, as I found out, this is often not the case in ex-communist countries like Russia where well-off parents tend to spoil their children rotten - Note that this is a gross generalisation though).

In the west, we have a situation which is just like we had in the middle ages when peasants had to pay their lords commission to work on their own farms (because the land technically belonged to the barons, knights, dukes, kings...). Except in the middle ages, work was based on manual labour and that didn't help any of the peasants to 'grow' intellectually - In fact, only high-society had the time to cultivate their intellect.

In today's society - Now that a lot of jobs are highly specialised and increasingly technical - By working, today's peasant class is accumulating highly specialised intellect. For the first time in history, we have a case where the lower class 'the scum' of society is becoming more intelligent than the high class of society (though not necessarily wiser - In that case, I would suggest the opposite).

I think that's why this idea of 'disruption' is so critical - Disruption is a mechanism which allows the younger generation to acquire wealth from older generations. Older generations have a collective monopoly (lock-in) on the world's wealth, disruption is about pulling the rug from under them one industry at a time.

ZeroGravitas• 11 years ago

One of the political ideas that's been bubbling along for a century or so is the "Land Value Tax". It's generally agreed that it's one of the best possible taxes by wonks. If a new generation of renters comes along it may finally get traction (though politically, since the old vote more, maybe not).

http://www.economist.com/blogs/freeexchange/2015/04/land-val...

mkozlows2• 11 years ago

The biggest problem with this article is that the data in their core graph[1] doesn't actually match up with their claims.

What that graph shows is what families were worth over a 14 year periods for a bunch of cohorts. And the data makes... a pretty smooth graph. There's lots of overlap and no obvious discontinuities, and no reason at all to think that there's any change in trend over time.

The only apparent effect that even possibly shows that younger people are worse off comes in the last two data points of each young person's line. But that's a totally obvious artifact, because that's the 2008 recession, which was the worst event of the 1989-2013 period graphed. (The 2000 dot-com bust was not nearly as huge.) EVERYONE'S line goes down at that time, including the oldest cohorts.

If the graph had more data, and showed what the 1901 cohort were like at age 31 (in the throes of the Great Depression), it would almost certainly be obvious that those 2008-driven dips aren't especially bad, comparatively. And yet, that's the old-person generation that is supposed to be the envy of the young.

This is just terrible interpretation of some unsurprising data.

[1] https://img.washingtonpost.com/wp-apps/imrs.php?src=https://...

shenanigoat• 11 years ago

Well...at least the young are rich in 'youth'.

6t6t6• 11 years ago

Unfortunately, this kind of richness does not use to last really long.

ams6110• 11 years ago

The answer (which is the same as it has always been) is buried at the end:

If young people want to increase their chances of being wealthy, one strategy is to emulate the behavior of older people: keeping an emergency fund, paying down debt, avoiding high-cost credit, and putting money into higher-returning investments

pcurve• 11 years ago

It's a sound premise, but young(er) people will never see the kind of boom that their parents experienced.

Younger generation is permanently hosed.

What this article fails to mention is all the privatization and regulations that have caused capital misallocation and favored certain classes of people.

traviagio• 11 years ago

So living in expensive cities like NYC/SF and London when you are younger is also becoming impossible. But we still do it... Heaps of us.

BrandonMarc• 11 years ago

One of the most important points that the paper makes is that everyone’s income and wealth tend to follow a kind of natural pattern during their life. [People under 40] haven’t been working for many years, so they don’t have an opportunity to save as much; they also need to make investments in things like education and new home ownership. [People in their 40's and 50's] have worked long enough they start to accumulate wealth rapidly.

I don't mean to SHOCK you, but did you know there's a massive age gap between young and old people? Also, an experience gap. Something Must Be Done About This!

The wealth gap between young and old people

Related Stories